It’s Getting Complicated for Growing Chinese Smartphone Makers

Smartphone makers Xiaomi and Huawei are learning tough new lessons this week, reflecting intense competition in the overheated market where a feisty field of Chinese players are vying for a place alongside global leaders Apple and Samsung. In Xiaomi’s case, the company has become embroiled in an embarrassing new gaffe in Taiwan involving collection of personal data. Meantime, Huawei’s Honor line of smartphones, which it’s trying to position as a mid- to upscale brand, is rapidly moving into the bargain bin with word that it has slashed the price on a new 4G model to just 799 yuan, or $130.

News in the smartphone space has been coming nonstop over the past year, as a crop of larger players including Xiaomi, Huawei, ZTE and Lenovo compete with smaller but equally aggressive names like Coolpad and Oppo in their home market. One of the most successful players in the pack has been the young Xiaomi, which has built its success on a high-profile marketing campaign that includes strategic media leaks, frequent promotions and an Internet-only sales model that caters to young hipsters.

That campaign has resulted in intense media coverage for the company, including a growing number of scandals over relatively small issues that probably would never be noticed if they occurred at any other domestic rival. Last week the company was embarrassed in Taiwan, one of its first markets outside of mainland China, when it was fined for publishing inflated sales data.

Now Xiaomi is back in the scandal headlines once more, this time for collecting personal data without consent of its users. The news, which was uncovered by Taiwan’s aggressive domestic media, prompted Xiaomi to issue a rare apology and say it was taking steps to fix the “problem.” Like last week’s fine for its inflated sales claims, this latest gaffe looks relatively minor and probably won’t damage Xiaomi’s reputation too much. But more such negative news could eventually hurt its reputation both in China and in its expansion markets, tarnishing the hip and trendy image it has so carefully cultivated.

Next let’s take a look at Huawei, which has just slashed the price on the 4G edition of its Honor brand 3C model by about 20 percent. The company announced on its website the model will now sell for 799 yuan ($130), down from its previous price of 998 yuan. The move comes less than a year after Huawei relaunched Honor with the aim of developing a brand that could compete more directly with the mid- to high-end models from Apple and Samsung.

This particular move comes just four months after Huawei made similar reductions in another one of its Honor-brand phones, the large screen 3X, that brought its price tag down below the 1,000 yuan mark, to 998 yuan. It made that move as Xiaomi promoted its own large screen model that sold for 799 yuan, reflecting the rapid price cutting that has been gripping the smartphone sector for most of the past year.

Just last week, the head of Huawei’s smartphone division was in the news after saying his company was getting out of the ultra-low-end business, in a nod to how stiff competition has become for the cheapest models. This latest price cut for a smartphone that was supposed to be a mid-end model shows that competition is creeping up beyond the low-end of the market. That looks like bad news for everyone, meaning Samsung and even Apple could join the domestic players in starting to feel some pressure in China before the price wars finally ease sometime next year.